JHB 
Annual financial statements
in South Africa
A company’s financial statement is constructed to give an indication of a company’s trading results – both its activity and performance. It illustrates the source of profitability, how these profits and cash flows were spent, and what the current values of assets and liabilities are. Companies are required to submit these annually to shareholders and regulatory stakeholders to report on financial performance, demonstrate compliance with income tax and CIPC requirements, as well as prove that they have satisfied financing covenants, where applicable.
Investors and governing bodies rely on the data provided in your company’s reporting to understand the status of your business’ finances. This transparency increases your company’s credibility and reputation. Therefore, it is crucial that this information is compiled accurately and on time. To ensure that your company stays compliant and that your reported data is correct and up to date, you can rely on the professional team at MMS Group.
What annual financial statements are
Statement of financial position (balance sheet)
The statement of financial position, also termed a balance sheet provides a snapshot of a company’s financial health at a specific point in time. Its three main components are assets, liabilities, and shareholders’ equity. Assets are all resources owned by the company, such as cash, inventory, and property, while liabilities represent financial obligations to other entities, such as loans or accounts payable. Shareholders’ equity comprises the residual interest in the assets of the company after deducting liabilities. By analysing this document, stakeholders can assess a company’s liquidity, financial flexibility, and capital structure.
Statement of profit or loss
Formerly known as an income statement, the statement of profit or loss offers a detailed view of a company’s financial performance over a defined period. It records all revenues earned and expenses incurred during this period. It starts with gross revenue or sales, subtracts costs and expenses, and provides a net income, which indicates whether the company made a profit or suffered a loss. It is crucial for understanding the profitability and growth potential of a business.
Statement of cash flows
The statement of cash flows traces the movement of cash within a business. It categorises cash flows into three activities: operating (cash generated from daily business operations), investing (cash used for investments in capital assets, and cash received from sale of these assets), and financing (cash received from or paid to investors and creditors). This report is essential for understanding a company’s liquidity and solvency position, as well as its ability to generate cash to fund operations, liquidate debt, and return money to shareholders.
Statements of changes in equity
This statement shows changes in the equity ownership of a company. This includes new equity investments, dividend payments, share repurchases, and changes in retained earnings due to net income or loss. It assists investors in understanding how a company is financing its operations and growth and how effectively management is using shareholders’ capital.
Notes to the financial statements
The notes are the fifth component, and the one most often treated as an afterthought. They set out the accounting policies applied, break down the figures in the four statements above, and disclose information that a number on its own cannot show, such as contingent liabilities, related-party transactions, subsequent events, and the judgements and estimates management made. Under IFRS and IFRS for SMEs, a set of financial statements is not complete without them, and they are frequently the first place an investor, lender or reviewer looks.
These documents are all related and together they form your business’ annual financial statements. When seeking investment, it is generally the first thing that investors will turn to as it gives a clear indication of your business’ financial history, performance and future growth potential, which is why it is so important that it is compiled professionally – and contains all the relevant information.
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Does your company need an audit, an independent review, or a compilation?
Understanding your public interest score
Your public interest score (PIS) is a single number calculated at the end of each financial year, and it drives most of what follows. It is the sum of four things:
- One point for every R1 million (or part thereof) of turnover during the year.
- One point for every R1 million (or part thereof) of third-party liabilities at year-end.
- One point for the average number of employees during the year.
- One point for every individual who holds a beneficial interest in the company’s issued securities at year-end (or, for a non-profit company, every member).
A company with R40 million turnover, R10 million of third-party debt, 60 staff and 3 shareholders scores 113, which places it in the middle band, where how the statements are prepared decides whether an audit is required.
When an audit is required
An audit is required if any of the following applies:
- Your public interest score is 350 or more.
- Your public interest score is 100 or more and your financial statements were compiled internally.
- The business holds assets in a fiduciary capacity for unrelated persons, and those assets exceed R5 million at any point during the financial year.
- Your company’s Memorandum of Incorporation (MOI) requires audited financial statements.
- Your company is a public or state-owned company.
When an independent review is enough
- Public interest score between 100 and 349, where the statements were independently compiled.
- Public interest score below 100, where the statements were compiled internally.
An independent review is a lighter, less expensive engagement than an audit. It gives limited assurance rather than reasonable assurance, and for most owner-run businesses it is the right level.
When a compilation is sufficient
Filing your annual financial statements with CIPC in iXBRL format
- To minimise the administrative burden on companies when having to submit financial information for regulatory compliance
- To reduce duplication and inconsistencies in submitted business information
- To achieve compliance and to provide accurate business information to investors with improved transparency
iXBRL stands for inline eXtensible Business Reporting Language. The “inline” part is what matters: it produces a single document that is readable both by a person and by CIPC’s systems, so the data can be validated automatically without a separate machine-readable file.
Annual financial statements are filed together with your CIPC annual return, which is due within 30 business days of the anniversary of your company’s date of incorporation. Companies that are not required to file audited or reviewed statements submit a Financial Accountability Supplement instead. Missing annual returns is what starts CIPC’s deregistration process, so this is a deadline worth diarising.
If you are unsure whether your company’s financial statements need to be submitted in iXBRL format, or you have any other queries or concerns, please contact our team to discuss your requirements.
How MMS Group prepares your annual financial statements
We establish your public interest score and confirm which level of assurance you require, before any work starts.
We compile the full set to IFRS or IFRS for SMEs, whichever framework applies to your entity.
We prepare and tag the iXBRL submission and file it with CIPC alongside your annual return.
Where an independent review or audit is required, our registered auditors carry it out so the compilation and the assurance do not have to be split between two firms.
We reconcile the statements against your income tax position, so what you file with CIPC and what you file with SARS agree.
Talk to our team about your annual financial statements. Tell us your turnover, headcount and financial year-end, and we will tell you which assurance level applies and what the work involves.
Frequently asked questions about annual financial statements
What is a financial statement?
What are the five types of financial statements?
Does my company need audited annual financial statements?
What is a public interest score and how is it calculated?
What is the difference between an audit, an independent review and a compilation?
Do I have to file my financial statements in iXBRL format?
When must annual financial statements be filed with CIPC?
What is an audited financial statement?
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